By TIOL News Service

MUMBAI, JULY 25, 2016: THE issue is - Whether when the assessee has deposited a sum at the time of allotment of a property and transfers such amount in favour of another party, it would amount to transfer of his rights over such property. YES is the answer.

Facts of the case

The assessee is a company. It got allotment of two shops and two car parking spaces in BDB and paid initial deposit amount for the said allotment. Subsequently, assessee transferred allotment of one shop and two car parking spaces together with the relevant deposits to its sister concern namely M/s Dhadda Diamonds Pvt. Ltd. During assessment, AO noticed that assessee had not declared capital gain arising on transfer of the aforesaid properties. The AO held that the right in the shop/parking space is a capital asset and extinguishment thereof shall give rise to capital gains and referred the matter of ascertaining market value to the DVO. After taking into account the market value & indexed cost of the properties, LTCG was computed. Upon appeal, CIT(A) confirmed the AO's order.

After hearing the parties, the Tribunal held that,

++ the assessee has obtained a right in the shops/parking spaces by way of allotment of them through lottery system. The decision rendered by the Tribunal in the case of Bombay Diamond Co. Ltd shows that the right over the properties allotted by BDB carry good market value. Hence, we are unable to agree with the submission of the assessee that it was a simple case of transfer of deposits. The fact remains that, by transferring the deposit amount, the assessee has actually transferred its right over the properties to its sister concern. Accordingly, we agree with the view taken by the tax authorities in this regard;

++ in the instant case, the assessee has not computed any capital gain and it has contended that it has not transferred any property. Another important fact is that the assessee has transferred the properties to its sister concern. In the case of transaction between related concerns, in our considered view, it is permissible for the AO to adjudicate the issue by considering human probabilities and surrounding circumstances. The AO has brought on record that the surrounding circumstances show that the right over the properties obtained by way of allotment command good market value. The human conduct and human probabilities would show that the assessee would not have transferred its right to the third parties "at cost". Under these set of facts, we are of the view that the AO was justified in taking the "fair market" value" of the properties as "Full value of consideration" for the purpose of" ascertaining the capital gains. In view of the above, we confirm the view taken by the tax authorities that the transfer of the right held by the assessee over the impugned properties is eligible to capital gains.

(See 2016-TIOL-1307-ITAT-MUM)